Business owners take advantage of low prices, rates to buy property

Wareham business owner Aaron Bates has been leasing space on County Road since he opened his tire business in late 2008.

Comment

southcoasttoday.com

Writer

Posted Feb. 24, 2013 at 12:01 AM

Posted Feb. 24, 2013 at 12:01 AM

» Social News

Wareham business owner Aaron Bates has been leasing space on County Road since he opened his tire business in late 2008.

Started as a joint venture with his dad, a 30-year veteran in the tire business, Bates opened Used Tire Warehouse to sell tires and offer customers full service replacement and repair.

But as the business grew, Bates found he was hampered by the amount of space he had available to work on customers' cars.

"Our biggest issue, that I saw, was the way customers would have to wait, because we had a limited space to work on vehicles," he said.

So, in 2012, Bates made the decision to invest more heavily in his operation and, in January of this year, he purchased an industrial building that offers triple the space he had on County Road.

Area brokers say businesses like Used Tire Warehouse that are taking the step to become building owners are a bright spot in the local commercial real estate market. Like residential real estate, commercial conditions slowly improved in 2012, a trend, many say, appears to be continuing into 2013.

"The primary driver right now is owner-user kinds of people," said John Shields, principal at Cape Cod-based Realty Advisory Inc. about market conditions. "They can own things for cheaper than they can lease it."

Commercial sales were up in 2012 and expected to continue to improve in 2013, according to the National Association of Realtors.

Nationally, sales hit $283 billion in 2012, the highest amount since 2008, said George Ratiu, NAR manager of quantitative and commercial research. And much of that activity, $98 billion worth, happened in the final quarter of the year.

Overall, just about every measure has increased, said Ratiu. Prices are up, rents are up, and absorption rates for office space, industrial, retail and multi-family properties are up.

But while national markets are seeing a rebound, secondary and tertiary markets haven't necessarily been having the same experience. Secondary real estate markets include metro areas such as Atlanta and Baltimore, according to Real Capital Analytics, a global research and consulting firm with an office in New York City. All other states, not included in major metro areas or secondary markets, are considered tertiary markets.

Ratiu said real estate data is typically tracked for property sales of $2.5 million and above. But most NAR members, about 60 to 70 percent of sales agents, sell properties that fall below the $2 million mark. And many of them are reporting that conditions are improving much more slowly.

To paint a more accurate picture of smaller markets, NAR began surveying brokers about 2-3 years ago, Ratiu said.

"It's really a tale of two markets," he said. "Those people (in smaller markets) are reporting very sluggish leasing activity and prices that, in fact continue to decline, but at a slower rate."

As an example, sales prices fell by 3 percent in the fourth quarter of 2012 in smaller markets, a decline from the 10 percent drop that occurred in fourth quarter 2011, but definitely not the increases seen in larger markets. In addition, rents have not risen as aggressively as they have in national markets, he said.

Similarly, lending is still a problem in tertiary markets, according to Ratiu, despite national headlines that say otherwise.

"In smaller markets, lending continues to be tight. The bulk of our commercial Realtors cite lending as the major concern for them still in the 4th quarter (of 2012)," he said.

While Ratiu said he doesn't have data on owner-user activity, he has heard about the trend from Realtors.

"Anecdotally, I'm hearing businesses with good cash flow, a good business model and stable performance are certainly more interested in making an investment in real estate rather than leasing," he said.

For Mike Giuttari, president of Providence-based MG Commercial Real Estate, owner-user purchases have been making up much of the region's recent commercial activity.

He said that's because of interest rates between 4.0 and 4.5 percent and the availability of the Small Business Administration's 504 loan program, which allows users to purchase a building with 10 percent down.

In New Bedford, Coastal Commercial Real Estate, part of The Nery Corp., has helped a few businesses recently make the move to property owner. In Wareham, Bates is one of them, as well as Amy Franklin McCoog, owner of Franklin Analytical Services, who recently bought a New Bedford building.

Franklin Analytical Services found a deal that was just too good to pass up, said McCoog.

"We rented and we just found it was the right time for us to purchase," she said. "We got a really good deal on this property."

McCoog, who operates the asbestos abatement and lead paint inspection business with her husband Tom McCoog, purchased a 5,740-square-foot commercial warehouse at 312 Hillman St. in the city at the end of December.

The new space is not only larger than her previous office, it offers better amenities.

"We were renting and it wasn't a good space," she said, citing the lack of running water and a leaky roof.

For Bates, the purchase of the 32,680-square-foot warehouse in the Wareham Industrial Park allows him to serve more customers simultaneously, add new services and equipment, create a customer waiting area, and if business grows as expected, potentially create jobs.

It also gives the business a better location, just off Route I-195 and close to the town's main retail plaza, Wareham Crossing.

"It's an opportunity to have more space and expand inventory and availability," he said.

Beth Perdue is the editor of the SouthCoast Business Bulletin. To read about these business topics and more, see the SouthCoast Business Bulletin on news stands March 1. Or, go to www.southcoastbulletin.com today. To subscribe to The Bulletin, e-mail Lisa Nicolaus at lnicolaus@s-t.com.